Organizations need to understand the changing business environment and as a result, there is need to strategies so as to not be thrown into the wind by business environmental change which is an upshot of globalization

1. STRATEGIC
MANAGEMENT
© Prentice Hall, 2002 8-1

2. Learning Objectives
 You should learn to:
– Explain the importance of strategic
management
– Describe the steps in the strategic
management process
– Explain SWOT analysis
– Differentiate corporate-, business-, and
functional-level strategies
– Explain what competitive advantage is
© Prentice Haanll, d200 2why it’s important to organizations8-2

3. Learning Objectives (cont.)
 You should learn to:
– Describe the five competitive forces
– Identify the various competitive
strategies
© Prentice Hall, 2002 8-3

4. The Importance Of Strategic Management
 What Is Strategic Management?
– A set of managerial decisions and actions
that determines the long-run performance of
an organization
 Purposes of Strategic Management
– involved in many decisions that managers
make
– companies with formal strategic management
systems have higher financial returns than
companies with no such system
– important in profit and not-for-profit
organizations
© Prentice Hall, 2002 8-4

5. The Strategic Management Process
© Prentice Hall, 2002 8-5

6. The Strategic Management
Process
 1. Identifying the Organization’s Current
Mission, Objectives, and Strategies
–mission - statement of the purpose of
an organization
 important in profit and not-for-profit
organizations
 important to identify the goals currently in
place and the strategies currently being
pursued
© Prentice Hall, 2002 8-6

7. Components of a Mission Statement
© Prentice Hall, 2002 8-7

8. The Strategic Management Process (cont.)
 2. Analyzing the Environment
– successful strategies are aligned with the
environment
– examine both the specific and general environments
to determine what trends and changes are
occurring
 3. Identifying Opportunities and Threats
– opportunities - positive trends in the external
environmental
– threats - negative trends in the external
environment
© Prentice Hall, 2002 8-8

9. The Strategic Management
Process (cont.)
 4. Analyzing the Organization’s Resources
and Capabilities
– examine the inside of the organization
– available resources and capabilities
always constrain the organization in
some way
– core competence - a unique and
exceptional capability or resource
 the organization’s major value-creating,
competitive weapon © Prentice Hall, 2002 8-9

10. The Strategic Management Process (cont.)
 5. Identifying Strengths and Weaknesses
– strengths - activities the organization does well or
any unique resource
– weaknesses - activities the organization does not
do well or resources it needs but does not possess
– organization’s culture has its strengths and
weaknesses
 strong culture - new employees easily identify the
organization’s core competencies
– may serve as a barrier to accepting change
 influence managers’ preferences for certain strategies
– SWOT analysis - analysis of the organization’s
strengths, weaknesses, opportunities, and threats
© Prentice Hall, 2002 8-10

11. Identifying the Organization’s Opportunities
Organization’s
Opportunities
Organization’s
Resources/Abilities
Opportunities in
the Environment
© Prentice Hall, 2002 8-11

12. The Strategic Management Process (cont.)
 6. Formulating Strategies
– require strategies at the corporate, business, and
functional levels of the organization
– strategy formulation follows the decision-making
process
 7. Implementing Strategies
– a strategy is only as good as its implementation
 8. Evaluating Results
– control process to determine the effectiveness of a
strategy
© Prentice Hall, 2002 8-12

13. Levels of Organizational Strategy
© Prentice Hall, 2002 8-13

14. Types Of Organizational Strategies
 Corporate-Level Strategy
– determines
 what businesses a company should be in or wants
to be in
 the direction that the organization is going
 the role that each business unit will play
– Grand Strategy - Stability
 no significant change is proposed
 organization’s performance is satisfactory
 environment appears to be stable and unchanging
© Prentice Hall, f2e00w2 organizations today pursue this strategy 8-14

15. Types Of Organizational Strategies (cont.)
 Corporate-Level Strategy (cont.)
– Grand Strategy - Growth
 seeks to increase the level of the organization’s
operations
 concentration - growth through direct expansion of
organization’s own business operations
 vertical integration
– backward - become your own supplier
– forward - become your own distributor
 horizontal integration - grow by combining with other
organizations in the same industry
– needs approval by U.S. Federal Trade Commission
© Prentice Hall, 2002 8-15

16. Types Of Organizational Strategies (cont.)
 Corporate-Level Strategy (cont.)
–Grand Strategy - Growth (cont.)
 related diversification - grow by
merging with or acquiring firms in different,
but related, industries
– “strategic fit”
unrelated diversification - grow by
merging with or acquiring firms in different
and unrelated industries
© Prentice Hall, 2002 8-16

17. Types Of Organizational Strategies (cont.)
 Corporate-Level Strategy (cont.)
–Grand Strategy - Growth (cont.)
retrenchment - designed to address
organizational weaknesses that are leading
to performance declines
– intended to:
 stabilize operations
 revitalize organizational resources and
capabilities
 prepare to compete once again
© Prentice Hall, 2002 8-17

18. SWOT Analysis And Grand
Strategies
Corporate
Growth
Strategies
Corporate
Stability
Strategies
Corporate
Retrenchment
Strategies
Abundant
Valuable
Strengths
Environmental
Opportunities
Critical
Environmental
Threats
Corporate
Stability
Strategies
Critical
Weaknesses
Environmental Status
Firm Status
© Prentice Hall, 2002 8-18

19. Types of Organizational Strategies (cont.)
 Corporate-Level Strategy (cont.)
– Corporate Portfolio Analysis - used when
corporate strategy involves a number of business
 Boston Consulting Group (BCG) matrix - provides a
framework for understanding diverse businesses
– helps managers establish priorities for making resource allocation
decisions
– businesses classified in terms of
 market share
 anticipated market growth
© Prentice Hall, 2002 8-19

20. The BCG Matrix
Market Share
High Low
Stars
Cash
Cows
Question
Marks
Dogs
Low High
Anticipated
Growth
Rate
© Prentice Hall, 2002 8-20

21. Types of Organizational Strategies (cont.)
 Corporate-Level Strategy (cont.)
– BCG matrix (cont.)
 strategic implications of the matrix
– cash cows - “milk”
 use cash to invest in stars and question marks
– stars - require heavy investment
 eventually will become cash cows
– question marks - two strategies
 invest to transform them into stars
 divest
– dogs - sold off or liquidated
© Prentice Hall, 2002 8-21

22. Types Of Organizational Strategies (cont.)
 Business-Level Strategy
– determines how an organization should compete in
each of its businesses
– strategic business units - independent
businesses that formulate their own strategies
– Role of Competitive Advantage
 competitive advantage - sets an organization apart by
providing a distinct edge
– comes from the organization’s core competencies
– not every organization can transform core competencies into a
competitive advantage
– once created, must be able to sustain it
© Prentice Hall, 2002 8-22

23. Types Of Organizational Strategies (cont.)
 Business-Level Strategy (cont.)
–Competitive Strategies
Michael Porter - industry analysis based on five
competitive forces
–Threat of new entrants - affected by barriers to
entry
– Threat of substitutes - affected by buyer loyalty
and switching costs
– Bargaining power of buyers - affected by number
of customers, availability of substitute products
© Prentice Hall, 2002 8-23

24. Types Of Organizational
Strategies (cont.)
 Business-Level Strategy (cont.)
–Competitive Strategies (cont.)
 Porter’s competitive forces analysis (cont.)
–Bargaining power of suppliers - affected by
degree of supplier concentration
– Existing rivalry - affected by industry growth
rate, demand for firm’s product or service, and
product differences
© Prentice Hall, 2002 8-24

25. Forces In The Industry Analysis
Threat of
New Entrants
Industry
Competitors
Current Rivalry
Suppliers
New
Entrants
Buyers
Substitutes
Threat of
Substitutes
Bargaining
Power or
Buyers
Bargaining
Power or
Suppliers
© Prentice Hall, 2002 8-25

26. Types of Organizational Strategies (cont.)
 Business-Level Strategy (cont.)
–Competitive strategies (cont.)
 Porter’s three generic strategies
–cost leadership - goal is to become the lowest-cost
producer in the industry
 tries to identify efficiencies in all operations
 overhead kept to a minimum
 product or service must be perceived to be of
comparable quality to that offered by competitors
© Prentice Hall, 2002 8-26

27. Types of Organizational Strategies (cont.)
 Business-Level Strategy (cont.)
–Competitive strategies (cont.)
 Porter’s three generic strategies (cont.)
– differentiation - offer unique products that are
widely valued by customers
 sets the firm apart from competitors
 differentiation based on quality, service, product
design, brand image
 customers must be willing to pay a price premium
that exceeds the cost of differentiation
© Prentice Hall, 2002 8-27

28. Types of Organizational Strategies (cont.)
 Business-Level Strategy (cont.)
–Competitive strategies (cont.)
 Porter’s three generic strategies (cont.)
– focus - aims at a cost advantage or
differentiation advantage in a narrow segment
 no attempt to serve the broad market
 feasibility of strategy depends on the size of
the segment and the ability of the firm to
support the cost of focusing
© Prentice Hall, 2002 8-28

29. Requirements for Successfully Pursuing Porter’s
Competitive Strategies
© Prentice Hall, 2002 8-29

30. Types Of Organizational
Strategies (cont.)
 Functional-Level Strategy (cont.)
– used to support the business-level
strategy
– creates an appropriate supporting role
for each functional area of the
organization
 e.g., manufacturing, marketing, human
resources
© Prentice Hall, 2002 8-30